Thursday, November 8, 2012

What Kind of World Are We Leaving Them?/What Follows?

Here are just the facts relating to youth unemployment across the globe:

A) United States of America: As reported by Young Entrepreneur Council*, unemployment for high school grads (ages 17-20) is 31.1%, and 9.4% for college grads between ages 21-24. Total student debt load has surpassed the $1 TRILLION mark. This figure exceeds ALL credit card debt in the country.

Eurostat* tracks unemployment in the Eurozone as follows:

B) Poland: Youth unemployment: 26.5% Overall unemployment: 10.1%
C) Ireland: Youth unemployment: 29.7% Overall unemployment: 15.1%
D) Italy: Youth unemployment: 35.1% Overall unemployment: 10.8%
E) Portugal: Youth Unemployment:35.1% Overall unemployment: 15.7%
F) Spain: Youth unemployment: 54.2% Overall unemployment: 25.8%
G) Greece: Youth unemployment:55.6% Overall unemployment:25.1%
H) Germany: Youth unemployment: 8% Overall unemployment:5.4%
I) Austria Youth unemployment: 9.9% Overall unemployment: 4.4%
J) Belgium: Youth unemployment:18% Overall unemployment: 7.4%
K) Finland: Youth unemployment:18.9% Overall unemployment: 7.9%
L) United Kingdom: Youth unemployment:20.4% Overall unemployment: 7.9%
M) France: Youth unemployment: 25.7% Overall unemployment: 10.8%

Statistics from countries in the Middle East and Africa are even worse. Tracking long-term historical cycles indicates that major geopolitical events and rebellions occur within the first fifteen years of the start of each millennium. Disenfranchised youth living with fear and without real hope is not a good combination even ignoring historical cycles. Desperation brings out the worst in humans. Even natural catastrophes like hurricanes are unfortunately too often followed by looting amongst the youth and down and out. Asset protection needs to incorporate and protect against risks even beyond statistical analysis and market corrections. If you are doing things like you have always done, and if you are thinking about your money and how to invest and protect in ways similar to what you have always done, this will not be adequate in this new normal. The future will be very dissimilar from the past; so you should not rely on the past as your guide. There are known unknowns and unknown unknowns. Today's world is not your daddy's Oldsmobile. The Oldsmobile is extinct. Are your financial and estate plans? Let us know if you need an inspection or millennium check-up.

*Young Entrepreneur Council, website 11/1/12. Eurostat, 10/31/12

Greg Gann

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Also, the opinions expressed in this material do not necessarily reflect the views of LPL Financial.

Wednesday, September 19, 2012

Helping that College Grad Land a Job

The Associated Press reports that last year 53.6% of graduates who had ever earned a bachelor's degree and who were under age 25 were either jobless or underemployed. This is the highest percentage in over eleven years. In 2000, before the dot-com bust wiped out telecommunications and IT jobs for graduates, the percentage was down to 41%. Also in the report were metrics indicating that recent college graduates were more likely to be employed as waiters, waitresses, bartenders, and food service personnel than in fields which actually required a college education. Those who were employed in offices were much more likely to have been hired as a receptionist or payroll clerk, or cashiers or retail clerks than in a skilled position. It also reported that government projections indicate that only 3 of the 30 occupations with the largest number of job openings by 2020 will require a bachelor's degree or higher to fill the position. The three professions with this distinction are teachers, college professors, and accountants. Most job openings will exist for jobs which cannot be easily replaced by computers, such as retail sales, truck driving, and fast food. For all the good that derives from technological innovations, it also results in what the famous Austrian-American economist, Joseph Schumpeter, termed "creative destruction" where jobs are destroyed and new skill sets are required. Creative destruction is the price of advancement. There wasn't much need for the horse and buggy after the automobile was invented. Kodak refused to accept the reality that digital cameras had changed the film industry, resulting in its bankruptcy filing. Creative destruction is magnified in a world where major revolutionary technological advances are brought to market practically every six months. While it is true that technology has resulted in creative destruction, job seekers today, and especially the younger, less experienced ones, have to go beyond traditional means and think and act in ways of creative construction as the means to overcome this creative destruction. Making connections on a proactive basis rather than reactively responding to a job posting is especially important for young graduates today because not only are they competing with so many of their own demographic, but they are also seeking to fill jobs held by a massive baby boomer generation and beyond who refuse to retire from the workforce. Since 2008, the number of employed age 55 and over has steadily risen, growing by over 4 million, while the number of jobs for all workers dropped by 8 million and is still down by over 4 million. There are many ways in which young grads can bring energy, enthusiasm, and productivity to a company. But, the graduate has to create the opportunity and sell the need. I believe that prospects for employment currently have and will continue to have less traction going the traditional route. Job hunting through traditional means has the odds unfavorably stacked. There are too many applicants for too few advertised job openings The grad who learns about an industry, and learns the skills necessary to enhance the company's bottom line, and actively focuses and markets and sells this need will have job offers from employers who never thought to hire, much less advertise for employment. This will require learning how to network and arrange informational sessions and follow-through. Tenacity will go a long way. I believe that there are jobs out there that don't actually currently exist, but are there for the taking for the interviewer/networker who takes the initiative and creates and sells the need. Creating and selling the need are skills that are not generally taught or stressed in college. Hence, very few graduates possess them. Yet, these are the very skills necessary not only to land the right employment opportunity, but they are also the same skills which every business requires in order to grow and prosper. So many young people are innovative when it comes to computers and technology. They need to channel this energy in ways in which they are both unaware and uncomfortable. Instead of waiting for the existing employee to leave behind a position to fill, your child or grandchild or niece or nephew or friend needs to just get out there and "play in the traffic." Speaking of traffic, the road to success is always under construction. We have to persevere and continue driving forward. I have built my practice in this way, with sufficient dents to prove it. And, I would be honored and humbled to meet and/or speak with any friend or relative who you think would benefit from these perspectives and straight talk. Respectfully, Greg Gann

Thursday, July 12, 2012

Who Are the Real "Fat Cats"?

Introduction During the peak of the American financial crisis, President Obama referred to American bankers and financiers as "fat cats". But, as I will evidence, the tide is shifting, and our citizenry is now questioning who and what is fair, and this label for the first time is starting to be pointed towards public service employees and their rich and unsustainable pension benefits. I predict that it will also carry forward into academia. Furthermore, this self-imposed public austerity is putting America on a very encouraging fiscal path towards sustained economic dominance. Who Earns What The annual salary of a rank-and-file Congressional representative in 2011 was $174,000, according to Of course, this is on top of Cadillac health and pension benefits, as well as compensation from writing and speaking opportunities. The Chronicle of Higher Education lists the 2009-2010 school year compensation of William Kirwan, the Chancellor of the University System of Maryland, at $716,744. The compensation in that year for Daniel Mote, Jr., the President of the University of Maryland at College Park, was $464,600. Freeman Hrabowski, III earned $420,339 serving as President of UMBC in that same academic year. Tamar Levin in a December 4, 2011 article for The New York Times reported that a study conducted by The Chronicle of Higher Education cited that presidents of 36 private colleges earned more than $1 million in 2009, up from 33 the previous year. Because of certain contractual retirement perks in that year, William R. Brody retired as President of Johns Hopkins University being compensated in that year with $3,821,886. Kevin J. Manning, President of Stevenson University, most likely has enjoyed his compensation of nearly $1.5 million. Levin also found that in the decade from 1999-2000 to 2009-2010, average presidential pay at the fifty wealthiest universities increased 75% to $876,792. Maybe college is considered "higher" education because the salaries of administration keep moving higher and higher. The Chronicle of Higher Education also cites that salaries for full professors in the 2011-2012 academic year was $197,800. Within this context, data compiled by The Project on Student Debt reports that members of the college class of 2010 who took out college loans, owed on average $25,250. And, roughly two-thirds of the class borrowed for college. More concerning is that due to data limitations, the figures do not include students at for-profit college, where other recent data indicate that 96% of graduates have loans and borrow nearly 50% more than those who graduate from other four-year schools. Within this backdrop, it is not only much more difficult for Americans to afford an adequate education, but college as well as post college graduates are increasingly finding it difficult to secure employment which will not only support themselves, but their past debts as well. In a recent interview, I heard one graduate compare her $900 monthly college loan payments that continue until she reaches age 45 to the child care costs her peers were experiencing. She said, "but my loans are not going to grow up and go to kindergarten any time soon." We are led to believe that we need at least a college education to earn a decent living. I think of education and the entire college experience as being far greater than simply earning potential. However, I have also come to realize that so many industries are regulated with incredible scrutiny in terms of truth in advertising, and government and education personnel seem to fall outside the purview. Wall Streeters, and lawyers, and doctors, and entrepreneurs have been vilified as "the fat cats", particularly if they earn more than $200,000 per year, while government civil servants and educators have been sainted. I have never heard any accusation about a University of Maryland employee earning $200,000 to $700,000 receiving any kind of government bailout, yet our tax dollars support those salaries and benefits. As an investment advisor, I am scrutinized ad infinitum for making sure that each and every single investment in a client's portfolio is suitable. The compliance in my industry is nothing short of staggering. Yet, our educational system, supported with public tax revenues promotes college education for everyone as the panacea. They believe that industry involves sales, and as such needs strict regulation. But, to my way of thinking, they are the ultimate salespeople, and they pretty much fall outside the scope of scrutiny and regulatory sales practices. Electricians, plumbers, mechanics, and a slew of other tradespeople cannot find adequately trained labor today. The demand for skilled workers exceeds the supply, yet Tom, Dick, and Harry are all convinced by the powers that be, and by the folks who supposedly are most trustworthy and know best, that everyone needs a college education. And, that it is well worth the huge debt load. There appears to be a symbiotic relationship between government and educators. Could that be the explanation why most centers for higher education promote a "liberal" agenda of bigger government as the remedy to most ills? Is it only I who thinks that the smart intelligentsia within government and education thinks they know what's best for society? It always fascinates me how so many with the PhDs who never forecast the bubbles somehow are credited to know how best to remedy them. The Pendulum is Shifting Recent events lead me to believe that the pendulum has just started to shift, and the public's perception of who are the real fat cats is quickly changing. The first occurred recently with the Wisconsin Legislature stripping state employees of collective bargaining rights. And, perhaps in reaction to bankruptcy filings by Harrisburg, Pennsylvania and Stockton, California, and within the context of the entire European fiasco, the public is becoming acutely aware that public funds are not unlimited. Last month, according to the New York Times, massive public pension reforms were approved by over 66% of voters in San Diego, California's second largest city, and nearly 70% by voters in San Jose, the third largest city in the state. The San Diego plan would cease to offer pension benefits to new hires, and only offer a 401k type retirement option similar to one offered in the private sector. Current workers could switch to a lower paying pension or pay more to maintain their existing benefits. The reason for the radical shift is that San Jose's pension payments jumped from $73 million in 2001 to $245 million this year, resulting in 27% if its general fund budget. All of this has occurred while the city was forced to cut its workforce 27% over the last ten years. San Diego has been forced to cut its workforce 14% since 2005. Residents report frustrations with deteriorating roads and limited hours for libraries and recreation centers. This issue has deepened to the point of crossing political lines. Rahm Emanuel, Chicago's Democratic mayor, is seeking to suspend the annual automatic cost of living adjustments for retirees. The point is that the government in seeking a scapegoat to today's woes, labeled industry as the fat cats who needed to be reigned in but, like a boomerang, it has caused private civilians to scrutinize their own finances as well as those whose salaries and benefits are paid by taxes. The pendulum is swinging, and Americans are questioning who exactly are the fat cats. Private citizens are infusing their own measures of austerity and demanding change. Similar to investment markets where things are either sold off too significantly or bought too aggressively, and eventually return to "normal" through a reversion to the mean, also in politics, the pendulum either swings too far to the left or to the right until it settles and reverts to the mean. From a purely economic point of view, this shift towards more governmental accountability, greater general scrutiny of power, and fiscal austerity, makes me more bullish on the United States than I have felt for some time. I don't care what the polls or the pundits say, the economy is awakening Americans from their slumber and inciting them to demand much greater fiscal responsibility. Times will become much tougher for those who have been manipulating the system, and unfortunately, also for those who are in real dire need. But hard work and determination and entrepreneurship are founding principles of America, and these values are becoming more and more in vogue. Pressure for smaller, more effective and efficient government is mounting. I am not as worried about which candidate wins the next presidential election because this pressure super-cedes party lines, and represents grass roots sentiments which will be lobbied in Congress. I believe that the power of human ingenuity inspired with competition and cooperation will create far more success and many more fat cats than can be mandated through bureaucracies. There is an equal and opposite reaction for every action. Thank you President Obama for initiating the dialogue which is contributing to today's public reaction. History may reveal this reaction as one of the lasting legacies of this administration. Respectfully, Greg Gann The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Also, the opinions expressed in this material do not necessarily reflect the views of LPL Financial.

Monday, April 2, 2012

How to Save $833,058.54 Per Minute

The U.S. consumer is responsible for approximately 70% of our country's economy. In short, we need consumers in the United States to continually spend in order to keep the economy healthy. Remember how immediately following the 9-11 terrorist attacks we were encouraged to demonstrate our patriotism through shopping.

Gasoline today is hovering near the infamous $4.00/gallon mark. It will be interesting to see what kind of impact if any of this creates for retailers. For each one cent uptick in the cost of a gallon of gasoline, there is a corresponding $1 Billion of consumer spending that is redirected away from other retail establishments per year, according to Credit Suisse analysts. Gasoline prices are directly siphoning billions of dollars out of our economy, not to mention the security implications and military expenditures associated with being so energy dependent.

Presently, the world consumes about 89 million barrels of oil per day. This costs $3 Trillion per year, of which $1 Trillion passes to OPEC. The vast majority (70%) of oil is consumed for transportation. Many U.S. presidents have made energy independence a promise on the campaign trail, but since 1948, our country has consistently been a net importer. Not only does such an imbalance result in uncontrollable price hikes, shortages, compromised foreign policy decisions, but also tremendous environmental threats as well.

Today, there are somewhere around 250 million vehicles in the Unites States alone. The government has not come up with a viable plan for reducing our foreign energy dependence in over six decades. Whether you like him or not, or agree with all his points, T. Boone Pickens is a real pioneer with a radical plan to achieve this ambitious goal, which has been unachievable through government. He is a businessman and not a politician. His focus is on natural gas for several reasons. His detailed analysis shows that on average, it costs a third less to fill a vehicle with natural gas than traditional gasoline. And, since 98% of the natural gas used by the United States is domestic, he argues that it is free from outside political and economic pressures.

Pickens believes that we should continue to develop multiple sources of domestic energy, but we should utilize the natural gas with which we are endowed while researching and developing other alternatives. Although there are numerous potential environmental impacts relating to the fracking process for accessing natural gas, Pickens points out that natural gas is 25% cleaner than oil, and it does not require refining. He also makes reference to the fact that the U.S. has three times in natural gas what the Saudis claim to have in oil.

Switching over to natural gas would require a lot of costs to the average American consumer as well as require tremendous infrastructure expenditures. As a result, the Pickens Plan focuses on the approximate 8 million 18-wheelers of the 250 million total vehicles in the United States. By retrofitting these heavy duty trucks to run on natural gas, Pickens estimates that the U.S. would reduce its imports by 3 million barrels per day. With light crude oil costing $106 per barrel, reducing imports by a factor of 3 million, would result in a savings of $318 million per day and over $116 billion per year. The net effect of retrofitting these heavy duty vehicles would decrease our imports of oil by 25%.

In 2011, the total cost of imported oil was approximately $454 billion. That is equivalent to our spending $833,058.54 per minute with foreign countries, many of whom are not our allies. Reducing our foreign oil imports by a third would mean $150 billion staying within our borders. The multiplier effect would be enormous. The U.S. consumer would directly benefit from lower transportation costs, significantly greater national security, and a much stronger currency, not to mention thousands upon thousands of high paying U.S. jobs. Due to improved technological means for extraction, the present supply of domestic natural gas is enormous. While a unit of natural gas cost $13.00 in 2008, today it is trading at just a little above $2.00. Retrofitting heavy duty trucks and installing natural gas pumps along truck stops of major thoroughfares would go a long way simultaneously towards improving our economy and the environment. Renewable energy sources such as wind and solar both come with shortcomings in that they are intermittent. Clearly developing and encouraging greater production and consumption of renewables is most noble, but with natural gas prices at historic lows, they are not economically competitive, and are therefore not currently feasible from a practical matter.

Energy imports currently account for nearly half of our entire trade deficit, and reduced energy costs would certainly boost American manufacturing, exports and improve our trade balances. Nothing is perfect, but we possess the technological and natural resources to fundamentally change the geopolitical landscape of the Middle East by crushing the stronghold of oil-rich nations AND save us $833,058.54 every single minute!

Greg Gann

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Friday, January 6, 2012

Another Reason to Roll

Facts: A client's husband died in 1999 at age 75 with a 401k plan from his previous employer. Since age 70, he had been withdrawing the necessary distributions required under the tax code and paying taxes on those withdrawals. The wife (client) was age 66 at time of husband's death.

Options: Wife could have rolled husband's 401k into her own IRA as a tax-free transfer or she could have kept husband's 401k and it would be treated at husband's death as an inherited 401k account.

Implications: Wife elected to keep the 401k plan intact. Wife is now over the age of 70 and she is required to take taxable distributions from the 401k plan each year. The distributions and associated taxes typically increase each year. Furthermore, the distributions are throwing her into a higher income tax bracket, and state and federal taxes are consuming 33% of the entire distribution.

The IRS uses different tables to calculate the required minimum annual distributions. And, the table required for a 401k distribution may result in significantly higher distributions than what would be required by the table used for an IRA. In this wife's case, the difference this year is equivalent to almost 82%. She does not need the income today, is concerned about what her future needs might be, and is distraught to see so much of the 401k corpus be eaten away by taxes.

Here is the point. By maintaining the 401k account, the client is limited to the investment choices provided by the plan. Those choices may fit into only two or three broad categories with limited options for diversification to help mitigate downside risk. Also, by maintaining the 401k, she is required to withdraw 82% more money each year, pay taxes on that money, and lose the tax deferral on that distribution. Simply rolling the 401k into a self-directed IRA in her own name would result in more investment alternatives and result in less current income taxes. The different tables required to calculate the required minimum distributions, along with other estate planning and income tax benefits, are additional reasons to consider an IRA Rollover. We perform these calculations for clients, and can analyze data on your behalf. Investment management involves more than simply managing investments.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.